June inflation falls, 1.2% beats forecast

Philippine headline inflation posted its sharpest drop in two decades in June at 1.2 percent on the back of sufficient food supply and moderate price pressures on energy and oil rates, the latest figures released Tuesday by the National Economic and Development Authority (NEDA) show.

Using 2006 as the current base year, the NEDA said the June figures covered the monthly inflation series from 1995 to June 2015.

Inflation in the month settled within the central bank’s forecast range of between 1.1 percent and 2 percent, and stood below analysts’ estimates of 1.4 percent to 1.8 percent.

Growth in consumer prices decelerated from 1.6 percent in May and 4.4 percent in June last year.

Excluding food and energy prices, core inflation dipped further to 2 percent in June from 2.52 percent in May and from 2.8 percent recorded a year earlier, according to data from the Philippine Statistics Authority (PSA).

From January to June, core inflation averaged 2.3 percent. Including those prices, headline inflation for the year-to-date averaged 2 percent.

Greece, El Nino
The Bangko Sentral ng Pilipinas (BSP) warned that although the year-to-date average inflation settled at the lower end of the government’s 2 percent to 4 percent target range, there are still risks that could provide upside pressure to consumer prices.

“While this out-turn is at the low end of the target range, there remain upside risks of financial market volatility in reaction to developments in Greece and possibility of El Nino later this year that necessitate care in next moves,” BSP Governor Amando Tetangco Jr. said in a text message to reporters following the release of the official June inflation rate.

But Tetangco said the central bank “will continue to monitor developments to see if there is need to make adjustments to our policy levers.”

Lower food inflation, oil prices
The NEDA said headline inflation in the food subgroup eased to 2.1 percent in June from 3.2 percent following slower price adjustments in rice, meat, vegetables, and fruits.

Besides this, inflation also slowed on reduced electricity prices due to lower fuel costs, said NEDA Officer in Charge (OIC) and Deputy Director General Emmanuel Esguerra.

“The double-digit year-on-year decline in the prices of unleaded gasoline, diesel, kerosene, liquefied petroleum gas or LPG, and the decline in Meralco rates affected key oil and electricity-related commodities and services in the current month,” he said.

Non-food commodities reflected slight price increments, with the subsector increasing to 0.4 percent in June from 0.3 percent in May, the NEDA said.

Interest-rate pressures ease
Meanwhile, the slackening of core inflation to 2 percent in June provides less pressure for interest rates to rise, bodes well for household consumption, and further supports economic expansion moving forward, Esguerra said.

The slowdown in inflation appears to be geographically broad-based as the price index in Metro Manila dipped to 0.6 percent in June from 0.7 percent the preceding month and 3.6 percent in June a year ago.

“It is also worth noting that except for the Philippines, inflation in the Asean-5, which includes Indonesia, Malaysia, Singapore, and Thailand, generally posted upward adjustments in May and June 2015,” Esguerra said.

Typhoons
Nevertheless, the NEDA remains cautious against any upside inflation risk, such as that arising from the occurrence of typhoons in the second half, which could be exacerbated by a prolonged El Niño.

Esguerra said efforts to monitor drought incidence in agricultural areas should be sustained to ensure that suitable policy actions are realized without delay.

“Timely importation of rice to augment domestic supply should serve as a ready measure to prevent the repeat of the high rice prices witnessed in the third quarter of 2013 until 2014, as these occurrences adversely affect the well-being of the citizenry,” he added.